Questions go beyond beef plant

Nov. 3, 2013

Written by

Richard Benda

Mike Rounds

MAJOR PLAYERS

Richard Benda: Cabinet secretary for then-Gov. Mike Rounds in the Department of Tourism and State Development. Recruited foreign investors for Northern Beef of Aberdeen and later monitored Northern Beef in a private-sector job. Joop Bollen: Director of the South Dakota International Business Institute until 1979, a state agency partly funded by Benda’s Department of Tourism and State Development. Oversaw EB-5 investment such as those Benda recruited for Northern Beef. Mike Rounds: Governor during the heavy state involvement in recruiting foreign investors for the Northern Beef Plant in Aberdeen and use of the EB-5 program to promote more business ventures in the state.

Timeline of major developments in the Northern Beef saga 2004: As head of the South Dakota International Business Institute, Joop Bollen forms the South Dakota Regional Center, one of the first state agencies managing EB-5 visas. 2006: Richard Benda appointed Secretary of Tourism and State Development May 1, 2007: Construction begins on the Northern Beef Packers plant in Aberdeen Jan. 10, 2008: Bollen incorporates SDRC Inc., and three related limited partnerships. Oct 28, 2009: A wave of 70 Chinese investors puts in $500,000 each in to South Dakota Investment Fund Limited Partnership 6, for the purposes of loaning money to Northern Beef Dec. 22, 2009: Benda signs a contract transferring management of the state’s EB-5 visa program from a state agency to SDRC. Bollen, the president of SDRC, resigns his state position as head of the South Dakota International Business Institute. August 2012: A second wave of 50 Chinese investors puts $500,000 each in to SDIF LP9 Sept. 28, 2012: Northern Beef slaughters its first cows July 22, 2013: Northern Beef files for bankruptcy Sept. 19, 2013: Gov. Dennis Daugaard quietly cancels the state’s contract with SDRC “for cause, immediately.” Oct. 20, 2013: Benda dies of a gunshot wound near Lake Andes. Oct. 29, 2013: Benda’s funeral is held. Oct. 30, 2013: Gov. Dennis Daugaard announces state and federal investigations of the Governor’s Office of Economic Development are underway. Oct. 31, 2013: Former Northern Beef officials say federal investigators are examining that company and its use of EB-5 money

Pat Costello

Tony Venhuizen

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During his four years in charge of South Dakota’s economic development efforts, Richard Benda worked tirelessly to promote an Aberdeen beef packing plant with the potential to create hundreds of jobs and bolster the entire region’s economy.

That meant approving the project for millions of dollars in grants and loans, the kind for which many large projects in South Dakota compete.

But direct state aid to Northern Beef Packers covered only a small fraction of the project’s $115 million cost. Far more came from scores of Korean and Chinese investors, each of whom put $500,000 into Northern Beef Packers — on the urging and encouragement of Benda and other state officials — for the promise of U.S. citizenship. The investment-for-citizenship incentive stems from a federal program established in 1990 called EB-5.

Now, with the Northern Beef plant mired in bankruptcy, many or most of those investors could lose everything they invested. And two weeks after Benda was found dead from a gunshot wound in a grove of trees, federal investigators are chasing potential criminal activity associated with the plant and the state’s role in promoting it.

More than just the usual loans and tax incentives, the Northern Beef Packers project reflected an unusually close cooperation between the state and private interests — to the point where it can be difficult to tell where one ended and the other began.

Benda took turns on both sides. He recruited EB-5 foreign investors for Northern Beef while Cabinet secretary for then-Gov. Mike Rounds. When he left office, he took a private-sector job monitoring Northern Beef — ostensibly on behalf of those investors.

Another key figure in Northern Beef had even stronger public-private overlaps. Until December 2009, Joop Bollen of Aberdeen was director of the South Dakota International Business Institute, a state agency under the Board of Regents partly funded by Benda’s Department of Tourism and State Development. His job included overseeing EB-5 investments in the state.

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Private companies to manage investments

Meanwhile, Bollen also created multiple private companies to manage EB-5 investments — 14 of them while he still was in public office, all bearing some variation of the name “South Dakota Investment Fund.”

Instead of directly lending their money to projects such as Northern Beef, wealthy foreigners would put their $500,000 into one of the Bollen-run firms, which then would make a single loan to the targeted project.

For example, South Dakota Investment Fund Limited Partnership 6, or SDIF LP6, was created as a vehicle for $35 million from 70 Chinese citizens backing Northern Beef.

The SDIF companies were private but run by a high-ranking state official, Bollen, on behalf of economic development projects receiving state support. Benda, while still Cabinet secretary, traveled overseas several times to speak at seminars about Northern Beef, promoting EB-5 investment in the Bollen-run companies.

A representative for a group of Chinese investors “explained that they were in part induced into investing into SDIF 6 by representations made by then-Secretary of the Department of Tourism and State Development, Mr. Richard Benda,” according to one of Bollen’s legal filings in a Northern Beef-related lawsuit.

EB-5 pumped foreign money into S.D.

Former Gov. Rounds said Saturday that EB-5 struck him as a great opportunity for the state.

“I still think the EB-5 program was a good program then,” Rounds said. “Anytime you can use private equity to get investment in the state, that’s (good) ... because it gets more private investment within the state, as opposed to state investment in the state.”

On Dec. 22, 2009, South Dakota decided to stop managing EB-5 investments directly. Instead, it signed a contract with a private company, SDRC Inc., to manage and promote the EB-5 program on its behalf.

SDRC was founded Jan. 1, 2008, by Bollen. On the same day he signed the contract for SDRC to take over the EB-5 program from the South Dakota International Business Institute, Bollen resigned as its director.

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Benda was the state official who signed that contract.

“Rich spent a huge amount of time, I think, promoting participation in EB-5 programs,” said Tony Venhuizen, a senior adviser to Gov. Dennis Daugaard. “That wasn’t because of a state program. EB-5 isn’t a state program. It’s just because in his view, his general portfolio, he saw that as a way to promote economic development.”

Rounds agreed.

“Richard did that very hard for an extended period of time, to promote an infusion of equity through the EB-5 program into a number of South Dakota programs,” he said.

Rounds said Benda and other tourism and state development officials told foreign investors it would be in their interest to have their EB-5 investments funneled through a private company.

“They said, ‘Look, there’s a way we think is a better way to do it,’ ” Rounds said. “The better way to do it is to have an outside entity handle it where they can invest” in third-party companies that then lend to projects.

Because loan holders get paid back before equity holders in bankruptcy proceedings, Rounds said that seemed to give more protection to investors.

“That, to me, was a very positive thing,” he said. “I could see no negatives to that.”

Rounds said he remembers the pitch focusing on the value of the pooled-loan model. He said he never read the contract.

“My understanding was that this was designed to comply with the federal guidelines for the EB-5 program,” Rounds said.

Bollen was not a member of the group making the pitch, Rounds said.

Benda oversaw beef plant loans

After Benda left office a year later, he immediately went to work as a loan manager for Bollen and SDRC, monitoring Northern Beef for SDIF LP6.

“SDIF LP 6 had hired a full-time employee, Richard Benda, the former South Dakota Secretary of Tourism and Economic Development, to remain on the (Northern Beef) project site full time to monitor the project,” Bollen wrote in a 2011 legal filing.

Rounds sees nothing unusual about Benda’s job change.

“Someone leaving the state and going to work for another organization in the same field that they had expertise — that in itself would not be unusual,” he said. Rounds added that it’s especially common when a governor’s term is almost up that political appointees leave for more permanent jobs.

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When a group representing some of the Chinese investors sought to install their own “third-party manager” to “participate in management decisions of NBP,” Bollen opposed that, saying Benda was an effective monitor and “four times” less expensive than the Chinese firm’s proposal.

Later, when Bollen created SDIF LP9 to manage another $25 million invested by 50 more Chinese citizens, Benda started administering that, too.

As a loan administrator, part of Benda’s work involved being a middleman between investors and the project. When a representative of the investors, Benjamin Li, became concerned about the project, Benda responded to try to coordinate a visit.

No criminal charges have been filed in the overlapping state and federal investigations into Northern Beef and the Governor’s Office of Economic Development (GOED). Benda’s death remains under review by Attorney General Marty Jackley, who has said he will release information this month from Benda’s autopsy.

Multiple former Northern Beef officials have said federal investigators are looking into the EB-5 program.

Bollen did not respond to a message left for him Friday at his office. He told the American News of Aberdeen on Thursday that he didn’t get the sense the investigation was about the handling of the EB-5 program, despite what some former Northern Beef officials say.

All but one of Bollen’s South Dakota Investment Funds were created before Benda left office in 2010, at the end of the Rounds administration.

Daugaard eschews EB-5 investment

Benda’s successor, Commissioner of Economic Development Pat Costello, has been much cooler to using the EB-5 program.

“GOED has not actively promoted the EB-5 program during the Daugaard administration,” Venhuizen said. “There are certainly projects that make use of or plan to make use of EB-5 investments that GOED works with, and tries to encourage or promote those projects, but they have not been actively promoting the EB-5 program.”

That means Costello never has encouraged, in person or through subordinates, foreigners to make EB-5 investments in South Dakota projects, Venhuizen said. Although Costello and Daugaard have traveled to China on official business, Venhuizen said those trips were “focused on the more traditional trade opportunities of selling South Dakota commodities and goods in China.”

“There were some instances where someone on those trips might have inquired about the EB-5 program, and they directed them to the SDRC,” Venhuizen said.

State cuts ties with Bollen

But no one is being directed to SDRC anymore. On Sept. 19, South Dakota terminated its contract with SDRC nine months early, “for cause, effective immediately.”

The Governor’s Office of Economic Development now manages the EB-5 program but has initiated no new projects since then.

When the governor’s office dropped the SDRC contract, it made no announcement. The governor’s office released the termination letter upon request last week. Sent by Costello to Bollen, it is terse and includes multiple demands that SDRC turn over documents and money “immediately” to the Governor’s Office of Economic Development.

When asked why South Dakota had ended the contract, Venhuizen said he is unable to say publicly.